Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

MANAGEMENT ADVISORY SERVICES TRINIDAD/ALENTON

MAS 3103 MCQ – Costs Volume Profit Analysis OCTOBER 2021

1. One of the first steps to take when using CVP analysis to help make decisions is:
a. finding out where the total costs line intersects with the total revenues line on a graph.
b. identifying which costs are variable and which costs are fixed.
c. calculation of the degree of operating leverage for the company.
d. estimating how many products will have to be sold to make a decent profit.

2. Which of the following would decrease contribution margin per unit the most?
a. A 15% decrease in selling price
b. A 15% increase in variable expenses
c. A 15% increase in selling price
d. A 15% decrease in variable expenses

3. A company’s breakeven point in peso sales may be affected by equal percentage increases in both selling price
and variable cost per unit (assume all other factors are equal within the rele vant range). The equal percentage
changes in selling price and variable cost per unit will cause the breakeven point in peso sales to
a. Decrease by less than the percentage increase in selling price.
b. Decrease by more than the percentage increase in the selling price.
c. Increase by less than the percentage increase in selling price.
d. Remain unchanged.

4. If a company’s variable costs are 70% of sales, which formula represents the computation of peso sales that will
yield a profit equal to 10% of the contribution margin when P equals sales in pesos for the period and FC equals
total fixed costs for the period?
a. P = .2/FC
b. P = FC/.2
c. P = .27/FC
d. P = FC/.27

5. Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of p roduct lines, pricing of
products, marketing strategy, and utilization of productive facilities. A calculation used in a CVP analysis is the
breakeven point. Once the breakeven point has been reached, operating income will increase by the
a. Gross margin per unit for each additional unit sold.
b. Contribution margin per unit for each additional unit sold.
c. Fixed costs per unit for each additional unit sold.
d. Variable costs per unit for each additional unit sold.

6. The contribution margin ratio always increases when the

a. Variable costs as a percentage of net sales increase.
b. Variable costs as a percentage of net sales decrease.
c. Breakeven point increases.
d. Breakeven point decreases.

7. As projected net income increases the

a. degree of operating leverage declines
b. margin of safety stays constant
c. breakeven point goes down
d. contribution margin ratio goes up

8. A managerial preference for a very low degree of operating leverage might indic ate that
a. an increase in sales volume is expected
b. a decrease in sales volume is expected
c. the firm is very unprofitable
d. the firm has very high fixed costs

9. LEVERAGE Company changed its cost structure by increasing fixed costs and decreasing its per-unit variable
costs. The change
a. Increases risk and increases potential profit
b. Increases risk and decreases potential profit
c. Decreases risk and decreases potential profit
d. Decreases risk and increases potential profit

10. The indifference point is the level of volume at which a company

a. earns the same profit under different operating scheme
b. earns no profit
c. earns its target profit

Page 1 of 6 www.teamprtc.com.ph MAS.3103 MCQ

EXCEL PROFESSIONAL SERVICES, INC.

d. any of the above

11. If a company desires to increase its safety margin, it should:

a. increase fixed costs.
b. decrease the contribution margin.
c. decrease selling prices, assuming the price change will have no effect on demand.
d. stimulate sales volume.

12. Which of the following items is not an assumption of CVP analysis?

a. Costs may be separated into separate fixed and variable components.
b. Total revenues and total costs are linear in relation to output units.
c. Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
d. Proportion of different products will remain constant when multiple products are sold.

13. In a graph of cost-volume-profit analysis, the

a. total revenue line typically begins at a required minimum level.
b. slope of the total cost line is dependent on the variable cost per unit.
c. total cost line normally begins at zero.
d. sales level at which total cost and total revenue lines intersect is also equal to fixed costs.

14. For every unit that a company produces and sells above the breakeven point, its profitability is improved
(ignoring taxes) by the unit's
a. gross margin.
b. selling price minus fixed cost per unit.
c. variable cost.
d. contribution margin.

15. Which of the following statements is true?

a. A shift in sales mix toward less profitable products will cause the overall break-even point to fall.
b. One way to compute break-even point is to divide total sales by the cost margin ratio.
c. Once the break-even point has been reached, income before tax will increase by the unit contribution margin for
each additional unit sold.
d. As sales exceed the break-even point, a high contribution margin ratio will result in lower profits than will a lower
contribution margin ratio.

16. A retail company determines its selling price by marking up variable cost s 60%. In addition, the company uses
frequent selling price markdowns to stimulate sales. If the markdowns average 10%, what is the company’s
contribution margin ratio?
A. 27.5% C. 30.6%
B. 37.5% D. 41.7%

17. Mayo Enterprises has fixed costs of P120,000. At a sales volume of P400,000, return on sales is 10%; at a
P600,000 volume, return on sales is 20%. What is the break-even volume?
a. P160,000 c. P300,000
b. P210,000 d. P350,000

18. Cork Company breaks even at P300,000 sales and earns P40,000 at P400,000 sales. Which of the following is
true?
a. Fixed costs are P120,000.
b. Profit at sales of P500,000 would be P50,000.
c. The selling price per unit is P4.
d. Contribution margin is 10% of sales.

19. Molder Company manufactures and sells three products: Good, Bad, and Ugly. Annual fixed costs are
P3,315,000, and data about the three products follow.
Good Bad Ugly
Sales mix in units 30% 50% 20%
Selling price P250 P350 P500
Variable cost 100 150 250
What is the composite break-even volume?
a. 17,000 c. 1,700
b. 2,139 d. 9,471

20. Lemery Corporation had sales of P120,000 for the month of May. It has a margin of safety ratio of 25 percent,
and after-tax return on sales of 6 percent. The company assumes its sales constant every month. If the tax
rate is 40 percent, how much is the annual fixed costs?
a. P36,000 c. P432,000
b. P90,000 d. P360,000

Page 2 of 6 www.teamprtc.com.ph MAS.3103 MCQ

EXCEL PROFESSIONAL SERVICES, INC.

21. Lopez Company had a net loss of P3.00 per unit when sales were 40,000 unit s. When sales were 50,000 units,
the company had a loss of P1.60 per unit. How much is the contribution margin per unit of the product?
a. P1.40 c. P4.60
b. P4.00 d. P1.75

22. Kator Co. is a manufacturer of industrial components. One of their products that i s used as a subcomponent in
auto manufacturing is KB-96. This product has the following financial structure per unit.
Selling Price P150
Direct materials P20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
Shipping and handling 3
Fixed selling and administrative 10
Total costs P90
During the next year, KB-96 sales are expected to be 10,000 units. All of the costs will remain the same except
for fixed manufacturing overhead, which will increase by 20 percent and material, w hich will increase by 10
percent. The selling price per unit for next year will be P160. Based on these data, the contribution margin from
KB-96 for next year will be:
a. P620,000 c. P750,000
b. P1,080,000 d. P1,100,000

23. Austin Manufacturing, which is subject to an effective income tax rate of 40 percent, had the following operating
data for the accounting period just ended.
Selling price per unit P60
Variable cost per unit 22
Fixed-costs P504,000
Management plans to improve the quality of its sole product by:
• Replacing a component that costs P3.50 with a higher grade unit that cost s P5.50; and,
• Acquiring a P180,000 packing machine with a 10-year useful life.
If the company desires to earn after-tax income of P172,800 in the upcoming period, it must sell:
a. 19,300 units d. 27,000 units
b. 21,316 units e. 23,800 units
c. 22,500 units

24. A company with P280,000 of fixed costs has the following data:
Product A Product B
Sales price per unit P5 P6
Variable costs per unit P3 P5
Assume three units of A are sold for each unit of B sold. How much will sales be in pesos of product B at the
breakeven point?
a. P200,000 c. P240,000
b. P600,000 d. P840,000

25. Product A accounts for 75% of a company’s total sales revenue and its variable costs ratio is 60%. Product B
accounts for 25% of total sales revenue and its variable costs ratio is 85%. What is the breakeven point given
fixed costs of P150,000?
a. P375,000 c. P444,444
b. P500,000 d. P545,455

26. An organization's sales revenue is expected to be P72,600, a 10% increase over last year. For the same period,
total fixed costs of P22,000 are expected to be the same as last year. If the number of units sold is expected to
increase by 1,100, the additional revenue per unit will be
a. P4 c. P6
b. P20 d. P46

27. The Big & Sturdy Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and
revenue data for the "Snooper" are given below, based on sales of 40,000 units.
Sales P1,600,000
Less: Cost of goods sold 1,120,000
Gross margin P 480,000
Less: Operating expenses 100,000
Net income P 380,000
Cost of goods sold consists of P800,000 of variable costs and P320,000 of fixed costs. Operating expenses
consist of P40,000 of variable costs and P60,000 of fixed costs. What is the margin of safety ratio based on the
sale of 40,000 units?
a. 100.00% c. 60.00%
b. 50.00% d. 150.00%

28. A manufacturer contemplates a change in technology that would reduce fixed costs from P800,000 to P700,000.
However, the ratio of variable costs to sales will increase from 68% to 80%. What will happen to breakeven
level of revenues?

Page 3 of 6 www.teamprtc.com.ph MAS.3103 MCQ

EXCEL PROFESSIONAL SERVICES, INC.

a. Decrease by P301,470.50.
b. Decrease by P500,000.
c. Decrease by P1,812,500.
d. Increase by P1,000,000

29. Metaphor Company is considering discontinuing a certain product line if it does not have a margin of safety
higher than 15%. The breakeven sales are P76,800, and the margin of safety is P13,200. Based on this
information, the controller has recommended that Metaphor keep this product line. Did th e controller make the
appropriate decision?
a. No, because the margin of safety ratio of 17.2% is not better than 15%.
b. Yes, because the margin of safety ratio of 17.2% is better than 15%.
c. No, because the margin of safety ratio of 14.7% is not better than 1 5%.
d. Yes, because the margin of safety ratio of 14.7% is better than 15%.

Use the following information for the next three questions.

Ipil-ipil Corp. would like to market a new product at a selling price of P15 per unit. Fixed costs fo r this product are
P1,000,000 for less than 500,000 units of output and P1,500,000 for 500,000 or more units of output. The
contribution margin percentage is 20%.

30. What is the minimum number of units of this product to be sold to breakeven?
a. 333,333 c. 500,000
b. 333,334 d. 416,667

31. How many units of this product must be sold to earn a target operating income of P200,000?
a. 400,000 c. 483,334
b. 566,667 d. Cannot be determined

32. How many units of this product must be sold to earn a target operating income of P1 mi llion?
a. 666,667 c. 833,334
b. 750,000 d. Cannot be determined

Use the following information for the next five questions.

Coleman Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market
covers both new units as well as replacement canopies. Coleman developed its 2012 business plan based on the
assumption that canopies would sell at a price of P800 each. The variable cost of each canopy is projected at P400,
and the annual fixed costs are budgeted at P200,000. Coleman’s after-tax profit objective is P480,000; the
company’s tax rate is 40 percent.

While Coleman’s sales usually rise during the second quarter, the May financial statements reported that sales were
not meeting expectations. For the first five months of the year, only 350 units had been sold at the established
price, with variable costs as planned. It was clear the 2012 after -tax profit projection would not be reached unless
some actions were taken. The company president assigned a man agement committee to analyze the situation and
develop several alternative courses of action. The following mutually exclusive alternatives were pre sented to the
president.

Alternative 1. Reduce the sales price by P80. The sales organization forecasts t hat with the significantly reduced
sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit costs will stay as
budgeted.

Alternative 2. Lower variable costs per unit by P50 through the use of less expensive ra w materials and slightly
modified manufacturing techniques. The sales price would also be reduced by P60, and sales of 2,200 units for the
remainder of the year are forecast.

Alternative 3. Cut fixed costs by P20,000 and lower the sales price by 5 perce nt. Variable costs per unit will be
unchanged. Sales of 2,000 units are expected for the remainder of the year.

33. If no changes are made to the selling price or cost structure, what is the number of units that Coleman
Company must sell in order to breakeven?
a. 400 units c. 500 units
b. 450 units d. 550 units

34. If no changes are made to the selling price or cost structure, what is the number o f units that Coleman
Company must sell in order to achieve its after-tax profit objective?
a. 1,700 units c. 2,500 units
b. 2,000 units d. 3,500 units

35. How much would be the after-tax profit if Coleman Company reduce the sales price by P80 in order to sell 2,700
units during the remainder of the year?
a. P321,600 c. P804,000
b. P482,400 d. P398,400

Page 4 of 6 www.teamprtc.com.ph MAS.3103 MCQ

EXCEL PROFESSIONAL SERVICES, INC.

36. How much after-tax profit would Coleman Company earn if it implements Alternative 2, lowering variable cost
per unit by P50, sales price to be reduced by P60 and selling 2,200 units for the remainder of the year?
a. P319,200 c. P478,800
b. P394,800 d. P658,000

37. How much would be the after-tax profit if the amount of fixed cost is cut by P20,000 and lower the sales price
by 5 percent, selling 2,000 units for the remaining 7 months?
a. P272,000 c. P403,000
b. P399,600 d. P408,000

Use the following information for the next six questions.

Candyman Company is a wholesale distributor of candy. The company services grocery, convenience, and drug stores in
Metro Manila.

Small but steady growth in sales has been achieved by the company over the past few years while candy prices have been
increasing. The company is formulating its plans for the coming fiscal year. Presented below are the data used to project
the current year’s after-tax net income of P110,400.

Manufacturers of candy have announced that they will increase prices of their products an average of 15% in the coming
year due to increases in raw material (sugar, cocoa, peanuts, etc.) and labor costs. Candyman Company expects that all
other costs will remain at the same rates or levels as the current year. Candyman is subject to 40 percent tax rate.

Average selling price P4.00 per box

Average variable costs
Cost of candy P2.00 per box
Selling expenses 0.40 per box
Total P2.40 per box
Annual fixed costs
Selling P160,000
Administrative 280,000
Total P440,000
Expected annual sales volume (390,000 boxes) P1,560,000

38. What is the breakeven point in units before a 15% increase in prices?
a. 200,000 c. 175,000
b. 275,000 d. 100,000

39. If fixed costs double, what happens to the breakeven point?

a. Increases but by less than a factor of two
b. Decreases by less than a factor of two
c. Increases by a factor of two
d. Decreases by a factor of two

40. If the current contribution margin ratio is maintained, what would be the selling price of the candy to cover the
15 percent increase in variable costs?
a. P4.00 c. P4.60
b. P4.15 d. P4.50

41. If candy costs increase 15 percent but the selling price remains at P4.00 per box, what will be the breakeven
point in units?
a. 338,462 c. 285,715
b. 346,457 d. 305,556

42. If the candy costs remain constant but the selling price increases 15 percent , what will be the breakeven point
in peso sales?
a. P648,000 c. P920,000
b. P838,462 d. P1,556,953

43. If net income after taxes is to remain the same after the cost of candy increases but no increase in the sales
price is made, how many boxes of candy must Candyman sell?
a. 480,000 c. 27,600
b. 400,000 d. 29,300

Use the following information for the next seven questions.

Southern Ski Company recently expanded its manufacturing capacity. The firm will now be to produce up to 15,000
pairs of cross-city skis of either the mountaineering model or the touring model. The sales department assures
management that it can sell between 9,000 and 13,000 pairs (units) of either product this year. Because the models
are very similar, Southern Ski will produce only one of the two models. The following data were compiled by the
accounting department.
Touring Mountaineering
Selling price per unit P132.00 P120.00
Variable cost per unit 79.20 79.20

Page 5 of 6 www.teamprtc.com.ph MAS.3103 MCQ

EXCEL PROFESSIONAL SERVICES, INC.

Fixed costs will total P554,400 if the touring model is produced but will be only P475,200 if the mountaineer ing
model is produced. Southern Ski Company is subject to a 40% income tax rate.

44. If Southern Ski Company desires an after-tax net income of P33,120, how many pairs of mountaineering model
skis will the company have to sell?
a. 12,459 c. 11,545
b. 13,000 d. 14,941

45. How much total sales revenue at which Southern Ski Company would make the same profit or loss regardless of
the ski model if it decided to produce?
a. P880,000 c. P831,600
b. P1,320,000 d. P11,647

46. How much would the variable cost per unit of the mountain eering model have to change before it had the same
breakeven point in units as the touring model?
a. P2.97 c. P8.00
b. P4.46 d. P6.80

47. If the variable cost per unit of mountaineering skis decreases by 10%, and the total fixed cost of
mountaineering skis increases by 10%, what is the new breakeven point in number of pairs?
a. 9,900 c. 13,007
b. 10,729 d. 15,898

48. At what number of pairs would the production of either mountaineering or touring model give equal profit?
a. 6,600 c. 13,000
b. 10,500 d. 18,803

49. If the Southern Ski Company sales department could guarantee the annual sale of 12,000 skis of either model,
which model should Southern produce and sell?
a. Either mountaineering or touring model
b. Mountaineering
c. Touring
d. Neither mountaineering nor touring

50. Suppose the management decided to produce both products. If the two models are sold in equal proportions,
and total fixed costs amount to P514,800, what is the firm’s break -even point in units?
a. 11,000 c. 10,500
b. 11,074 d. 11,647

– end -

Page 6 of 6 www.teamprtc.com.ph MAS.3103 MCQ